Is this a relationship that is one premised upon the positives or negatives, is it a friend or foe type set of circumstances. I think ultimately what will be successful are those who can at least embrace it as a partnership opportunity, be mindful of where the OTAs can truly add incremental value. Many talk [...]
Is this a relationship that is one premised upon the positives or negatives, is it a friend or foe type set of circumstances. I think ultimately what will be successful are those who can at least embrace it as a partnership opportunity, be mindful of where the OTAs can truly add incremental value. Many talk [...]
In this digital age there is tension between online travel agents and brands, as Carl Michel of Generator Hostels discusses in this TV show.
Digital age conflicts
There's always a tension between an OTA and a direct machine, one of the challenges is simply, you've got to, you've gotta co-exist - we're frenemies, basically, to the OTAs, they are a necessary evil, what we hope to see, is by driving more content onto our web-site, and more unique offers onto our website, that we'll gradually gain more brand fans, brand loyalists, but we're still a relatively small brand, we only have ten locations, so we have to recognise the OTAs do play an important role in getting our brand distributed and out there to the market.
Hospitality TV will continue to feature shows about OTAs and what the digital age means for hospitality. Why not take a look at who else has been featured in the Hospitality250.
Deal-making is a hurdle for growing business. In this TV show Tom Walsh of Staycity discusses a strong development pipeline.
Deal-making in alternative markets
It is a very limited marketplace. I mean our our objectives, were 900 units today, by the end of next year we'll have 2000 keys. There are deals that we did over the last few years that are under construction at the moment, many of them, a couple of them opening this year, and four or five properties opening next year. It's hard to find the properties that's, you know, that's, that's you know, par for the course, you really are competing with other users, whether it's office use or residential use, or hotel use, you're generally competing for, you know, scarce real estate in city centre locations. We're, we're seeking city centre locations, so you're, you know, you are by definition really, uh, competing with other users. Our growth plans will see us having about 5000 keys by 18 or 19. We're quite comfortable we'll be able to find sufficient properties for that we've, as I said, 2000 open by the end of next year, and a pipeline of 1300 on top of that. And, a good strong unsigned pipeline, so you know, we're able to ferret them out, you know, bit by bit, deal by deal.
Browse more videos by the Hospitality 250 experts and find more insight into deal-making and other hospitality topics.
Africa is more than a great opportunity, it's the biggest market to come. Just to keep in mind, a few numbers; first, 1.5 billion inhabitants by 2050, it will be bigger than uh, China or bigger than India. In the continent of Africa fits more or less all the whole world; uh China fit in Africa, India, Europe, US, and Brazil, just to give you the size of Africa. And today, if you take the market, only 5%- 5.3% of the sub-Sahara Africa, just to give you uh, the, the- the mass market that we are developing, uh, branded hotels, 5%, versus 44 in, in Europe, and 70 in the US. Then, to show you the massive opportunity we have, all together, bigger than chain original player like Mangalis Hotel Group, or small independent hotels, to support the growth of Africa.
Advantages and disadvantages of serviced apartments
The staff level is a lot lower than, than in hotels, we all know that in F&B and in conferences, you have very high staff levels, so as we don't have this it's, it's reducing, our staff level. But also in terms of the normal hotel guest, it's when they check in and when they check out that the most work is created for the, for the hotel. And not just at the reception, but also for housekeeping, for the concierge, even for accounting, and so by having longer stays we can really reduce the amount of work that we have, per guest.
It is a typical challenge for us, of course, having bigger units. and in fairness the units size have come down, in recent years. However, please remember we have all the space that we're not using for restaurants and conferences that we can now allocate for rooms for example, as well as we might use part of that space to rent out to retail. So all this generates additional revenue.
I think another key advantage of serviced apartments is in terms of exit strategy, a hotel, you can always just sell as a hotel, in one block whereas serviced apartments, depending on the legislation in the country you are in, you might have the opportunity to sell the apartments individually as private residences And so therefore you have an option basically to if the residential market is booming, you might say "hey, you know, I'm actually selling these as residential" rather than, than, as a trading business.
Customer demand will drive which concepts take off and which get left behind. In this TV show Tim Helliwell discusses how consumers are looking for something different.
Customer demand for alternative accommodation
Well, I think these really are arguably the future in terms of where the sector is going. The established brands and the established offerings will always be there and there will always be a market for them, but as we've heard today, you know, people are equally looking for something different, whether that's the brand offering and everything that goes with it, or indeed, in terms of the concept that's been offering. So, whilst, as I said on my panel, that you know I, I'm focussed on hotel finance, I'm actually focussed on aparthotel finance, hostel finance, anything which has got a hospitality angle to it, because frankly that's what consumers are looking for, and that's exactly why I'm here.
Hospitality TV will continue to feature shows about customer demand and alternative accommodation. Why not take a look at who else has been featured in the Hospitality250.
I think what they are is, is offering consumers this choice. I might be willing to stay at a, a mainstream hotel whilst I'm at work, but equally at weekends I might fancy something differer. I might fancy going and staying in a hostel in a European city with my family, and I might not necessarily want to have that full service experience. I might be very comfortable to stay in a, in a hostel with my family and not necessarily need a dinner and bed and breakfast offering; I might be just happy to go and sort myself out. And I think also, the offerings in terms of some of them are a bit edgier for example; maybe that's something that I might be interested in exploring and I think this, this is the, this is what it's all about now, it's about choice, and I think then in terms of the safety from a banking perspective, if these are well managed propositions, if they've got sustainable cash flows, sustainable business models, this is exactly something which a funder would want to explore.
Owner-operators are common in the alternatives market
In terms of operating models, many of them start out as owner operators and indeed well, you know, we've been hearing about these concepts today. Many of these brands that have come through, you know, fundamentally they have got investment and they are owner operators, they're in charge of their brand name, they, they run the operations and they also own the real estate, you know. And frankly that from an investment perspective, it works because it allows you that ability to be in complete control of the operating model, and you have that flexibility. And I think as you start moving through and then looking to expand that model whether it's into a management contract or a franchise or something else, ultimately those types of models, you want to be, you want to be sharing a concept which is established.
So I think normally what you see is you'll see this type of concept, and we've heard about it today, you know, a lot of these are owner-operators; as they've grown they've grown within an owner-operator model, but then they are looking for that next level of growth, potentially via franchise or management contract.
That's what I do. Our business is all about operating risk, so, you know, we'll take owner operations, management contracts, franchises, you know, manchises, and that's what we do; we look at those operating cash flows and, and we understand the difference in them and how they can work. But fundamentally, at this stage in the market, which is still a relatively young part of the sector, a lot of the propositions that are coming out, they are still owner operators. And, and I can understand that, it makes sense for the investors, and it makes sense for the operators because they've got that flexibility.
I’m very sceptical about brand loyalty is the first thing that I’d say and we’ve talked about that in today’s panel session, that ultimately I think brand loyalty in the hotel sector is limited. Will customers always be seeking best value? Well I think naturally that's going to be a part of their decision making process but I think the interesting thing is that there is a widely held perception that the online channel, the OTA channel is cheaper than dealing direct with the hotelier when actually, basically offering the same prices. So the challenge for the operators is really, you know, it’s not really that the OTA’s have got a price advantage it’s just that they’ve got a marketing capability and advantage that's been driving traffic to the OTA sites relating to the hotels. So I think yes, we’re sceptical about branding but overall there’s still a strong opportunity for the hoteliers to respond because the price differential is not that great.
Real estate funds can be a part of the development process for hospitality projects. In this TV show Andrew Pratt explains what Patrizia is all about.
Real estate funds and commercial investment businesses
Patrizia was set up in the mid 1980s, basically as a residential property company investing in residential property in Germany. Went through an IPO in 2005, now has over fourteen billion euros worth of assets, mainly in central Europe, fifty residential and commercial, we have thirty funds in Germany, we're the second biggest house builder in Germany as well now, the market in Germany's changing from being a, er, rental market to home ownership. Similar model to the UK. We act for a hundred pension funds across Europe - well across the world, actually. The strategy for Patrizia was to replicate that model, in the UK. Came into the UK, about - just under two years ago now we've been setting up both residential and conversion, commercial investment businesses.
Hospitality TV will continue to feature shows about real estate funds and development. Why not take a look at who else has been featured in the Hospitality250.
I've set the first student fund up in the UK in 2000, and if anyone said to us at that time that that was going to be a massive alternative asset class the way its grown, I mean you wouldn't have believed them. It's amazing the way that one has developed, and one of the main reasons it did develop was Nick Porta at Unite did a lot of R&D on what the customer wanted, so he made sure that the size of the unit was the right size for the student, that the services that the student got was exactly what they wanted and Unite have been incredibly successful as a result. And then now we're seeing some of these, interestingly hostel type operations, I mean they have existed, but of course now they're a bit flashier, 'cause they're actually what some of the student accommodation blocks, you take Edinburgh for instance, you know they have a reduced weekly tenancy, say forty two weeks in the year, the rest, they they, pack a single unit room, that they put six beds in. And they operate it on a hostel basis. Because one of the interesting thing with host - with hostels is, you can have a hostel without having a bar. Actually, as it happens, the bar is an important ancillary income source for the operator, whereas in the student accommodation you daren't have one! It doesn't go over particularly well, so, I mean every, every sector has a nuance. Private rented sector can be colossal in terms of the investment opportunities as compared to student housing. And actually as compared to hotels. You know, youngsters now, can't afford to buy their own houses, because the deposit that's required is enormous the mortgage market reviewer has made it difficult to get a mortgage, so actually the provision of rented housing in the UK is a massive need, whether it be affordable, whether it be mid-market, you know, for youngsters just leaving university it's got incredible opportunities and it will become within the next five years a major asset class, as hotels are.
Hotel owners will all have some common challenges. HOFTEL aims to help hotel owners work together as Simon Allison explains in this video.
Hotel owners unite
Well we are a hotel owner's alliance, so - why? Essentially because if you look at the structure of the industry, I mean most people know, a lot of the hotel real estate is managed by third parties, by other people, and if it isn't managed by third parties it's branded by third parties. And most of those are bigger and more global and certainly more experienced at negotiating contracts than the owners. So, ten years ago, I decided with a group of other owning companies to get together and form an alliance, almost like a hotel owner's trade union. And our objective is to leverage the combined power of owning companies around the world.
Hospitality TV will continue to feature shows about hotel owners and real estate. Why not take a look at who else has been featured in the Hospitality250.
OTAs have disrupted the industry in more ways than one. In this TV show Brian Reeves discusses how OTAs drive conversion rates.
OTA's approach to conversion
I guess the cornerstone, from a conversions perspective, the cornerstone of conversion matrix is abandonment analytics and understanding why it is visitors to our web site don’t end up booking with us. So we look at the performance of a typical hotel’s web site and compare it with the online travel agents; there’s a gulf between the two. So people like Booking.com spend a lot of time, probably a lot of money in multi variant testing which is the key too that drives the conversion improvement. Hotels are starting to pay attention to that a little bit at the moment but what happens as a result is that as the online travel agents improve their conversion rate, their advertising cost per room night sold decreases. So what they’re able to do is carry on with a lot more digital marketing work which tends to be disruptive and gain an awful lot of OTA market share in that space where even if you look at – I think it’s got some of the leading hotel brands. They haven’t caught up from any like, science perspective terms of understanding that key component which is I guess the central component from a travel investment perspective.
The Hospitality Channel will continue to follow discussions around OTAs and bring you videos from experts within online travel agents. Look out for the next 10 industry experts to be announced as part of Hospitality250
Digital platforms have changed the way the hospitality industry works. In this TV show Frank Fiskers discusses how distribution has changed for Scandic.
Intermediary digital platforms
So Scandic is a Nordic hotel group. We operate approximately 230 hotels, primarily in 4 Nordic countries with a little bit of business in Germany, a little bit of business in Benelux. We are 13,000 team members and we have a of approximately 11 billion Swedish kroner.
I don’t know if it has disrupted distribution but I think it has changed distribution dramatically and that's of course the shift from, in principle, all other channels to the internet both through digital intermediaries and through our own web sites.
I think for Scandic it is like most other hotel companies, you know, we started working with these intermediaries back in – after it was 9/11, I think we never really realised whom we went into bed with and I think that this relationship has grown tremendously over the years but also it has its challenges and this is what we’re seeing now, that we are trying to cope with these challenges and trying to determine what should we do with these challenges that these intermediaries present.
Keep browsing the Hospitality Channel for more great TV shows about digital platforms, distribution and OTAs. Look out for the next 10 industry experts to be announced as part of Hospitality250.
OTAs and hoteliers have a complex relationship. In this video Marco Saio dicusses Hotel Tonight's positioning.
I would say, I think we have to take a step back and examine how hotels are working with their existing channel partners and what value they’re getting from those relationships. I think it’s always been quite a pendulous relationship, you know, sometimes the hotels have more power in terms of the terms and conditions that they're commanding. Sometimes the OTA’s hold sway just because of their clout, their marketing size and power. I think now is the time to really re-evaluate those relationships and if you're interested in working with Hotel Tonight I think the most important thing is to understand what sets us apart from the traditional OTA’s. And that comes back to our flexibility; we don’t make any, we don’t dictate how partners should use us. If you've got rooms on the day we want you to load them, we want to be your same day channel of choice, but we have absolutely no load or discount requirements which is, I think, a breath of fresh air for, certainly for the supply side.
Look out for the next 10 industry experts to be announced as part of Hospitality250. Watch more TV shows and briefings for more expert insight on OTAs
Hotel industry development in South Africa is seeing a shift. Andrew Rogers of Hospitality Property Fund discusses acquisition and development in this TV show.
Hotel industry development funding
Well, certainly the current fund philosophy is to look at acquisition of existing hotel space and hotel product. And that, I think will certainly, they are more distressed assets and it’s currently cheaper to acquire than to develop. I think that however will shift enough. I think you’ll find that certainly hotel land will become available, probably more than likely mixed use developments as opposed to standalone hotel product. And as such I think the opportunity for international investors and/or investors into South Africa space will be to probably use a fund like ourselves which is an established fund. Your major player hotel companies are unwilling to put equity into the game. So for us we’re able to find tenants willing to sign leases with the backing of an international brand. And really if you’re asking me where the major development now that’s occurring, certainly Cape Town is a very attractive development now, Johannesburg will remain the business hub and traveller portal for most of Africa or Southern Africa. And then to a degree Durban, where one senses, from a major market point of view, those are the three sort of major notes in South Africa.
If you enjoyed this TV show about hotel industry development in South Africa, why not browse more great free content on The Hospitality Channel.
If you invest in the hotel sector you have to take a long term view. The tourism industry is cyclical. I think overall, you’ll see that the tourism industry for those who know what they’re doing and investing wisely, can provide higher returns than any other asset class. But you have to take a long term view. Yes, you can be speculative and build for a boom, and get caught out by, you know, something that just goes bust all of a sudden. But it’s the long term investor I think ultimately that wins, and that’s our view. We are buyers, we’re not sellers, we’re buying assets to hold them, to reposition them if necessary, to keep investing in them and make sure they keep on performing well so they can withstand the test of times and the cyclicality of the market.
Hotel real estate ownership has transferred over the past 25 years from brands to banks. In this TV show James Chappell discusses straddling the world of real estate owners and hotel operators.
The hotel real estate overhaul
Our clients really are the people who are involved in the owning of the real estate, that community in the industry. And so we work with banks with individual owners, with real estate investment trusts, basically anybody who owns a hotel real estate asset. I mean 20-25 years ago the real estate asset itself was owned by the brands and they went under, they went though a process of selling off the family silver if you like. They decided are we in the hotel real estate business or are we in the hotel operation business? And there was a real separation and they decided very clearly that actually, we're not real estate guys we are hotel guys, and so 20 years or so ago you had a big inflow of hotel real estate into the market, which was then snapped up by, at the time it was banks, property companies, high net worth individual's trusts that were set up specifically to deal with hotel assets. And what that did is it created a need for a level of skills that was part hotel, part real estate, and it was a skill set that really wasn't there in the marketplace before, so a lot of what Horwath HTL does is we act if you like as a translation service and we straddle both worlds between hotel real estate between the investment community and the hotel operating community, because one of the interesting things about a hotel asset is that unlike other real estate asset classes like commercial or residential or retail, the value of the underlying asset is very closely linked to the performance of the property and so it is very difficult to separate the value of the underlying hotel business from the real estate itself, so you relay need expertise in terms of how the business works, how the contracts are structured and how they work etc.
Custom management agreements are a great way for deals to be made that both sides are happy with. In this TV show Petr Chitipakhovyan of CH Group explains how they can be used.
Custom management agreements for hospitality deals
I like to say that first of all never be so conservative and never stay on the same position, life is changing, and even agreements which has been done 20 years ago or 10 years ago or 20 years ahead, they can be changed as well. And we are doing that with our partners, this custom management agreement, after that we create a special enterprise lease agreement which is something in between. And now we agreed with Marriott to flip our managed hotel to franchising, because of that we create our own company. And because we have enough experience to work with Marriott we have now ability to manage our hotels and the franchising. I think that it’s necessary to have a certain period of time because it’s a question of proper calculation, brand as well invest money to get these hotels running. And 15/20 years, it’s okay. But it has to be good connection with brand that if you would like to discuss something later you have to have your partner who are willing to do that as well if circumstances really changed.
More expert videos are added to The Hospitality Channel every month. Keep an eye out for more great TV shows on custom management agreements, deal-making and related subjects.
Deal-making is changing as owners are demanding more
Deal-making varies across countries as may be expected. In this TV show Saurabh Chawla of Louvre Hotels Group discusses the current trends that he sees.
You know, the market’s evolving all the time. I do development outside Europe. So I do deals in South America. I do deals in China, in India, in Africa. So it’s a wide spread of deals. The deal making is very different as one would expect. It’s a bit different for each region. The trend I’m seeing is that owners are getting fussier in terms of, you know, why is that I’m giving all my hotels to an operator without the skin in the game. So increasingly we’re seeing owners asking for some sort of financial benefit. And that trend started off in Asia and now I think it’s coming to Europe now and more and more owners are asking for some sort of financial instrument or skin in the game as they call it. Otherwise it’s really good in the making, lots of alcohol to be drunk in many parts of the countries. We have to build trust, especially in Asia and in South America before you can actually get into any sort of deal, Cyprus unlike in Europe where it’s very direct. So yeah, its different markets, different deals.
Keep browsing the Hospitality Channel for more videos on deal making trends and owner/operator relationships.
Hospitality Careers: Development is a rewarding business
Hospitality careers can take many different forms. In this TV show Peter Vermeer of IHG discusses why he thinks development is better.
Good and bad points of hospitality careers
First of all never go in operations, I think that is extremely, I mean it’s extremely interesting and you can learn till even if you’re 150. But development gives you huge satisfaction when you’re very young. I think in a later age it’s much better to go into a more commercial position. But I would say to my son, never try to go too early into a commercial position because there is an end to any commercial position. So yeah, it’s, there was a long time I would say to my son, never go into the hotel business. But I’m getting a little bit softer and I think, you know, I’ve found the right niche. So if he would follow me, great.
If you enjoyed this TV show and want to hear more about hospitality careers then explore more videos on the Hospitality Channel.
OTAs developing long term relationships with hotels
OTAs have often been seen as a disruptor of the hotel industry, as a competitor and a negative force. However it is becoming more apparent that hotels and OTAs can coexist and work together, as Christopher Michau discusses in this TV show.
OTAs will help market hotels
We really see it as a long term business. We are not there for the short term, we want to develop a profound relationship and partnership will different hoteliers. So it’s really about telling us why those hotel chains and independent hotels want to work with us. I think this is really the misconception that is happened in the past. You work with OTAs and Expedia, just for having heads in beds basically, but really every single hotel is different and they can really benefit from what we can do. At the end of the day we are spending over a billion dollars in marketing per year. It’s really about how you leverage that investment that we’re doing for your own needs as a hotel or hotel chains.
If you found this video about OTAs interesting, why not watch more TV shows on The Hospitality Channel?
Hotel products are bought and sold by The Blackstone Group. In this TV show Gabriel Petersen discusses how to best position the hotel for the sale.
No tricks to sell hotel products
I think the message is that the same way we have to sell a lot, we have to buy a lot, so we do both. No matter how smart you try to be the reality is, the market is the market. There’s no point in making the old silly tricks to try to… of course you put your best for forward, you try to be very transparent as to what the asset does, and then you let the buyers and the bidders just factor in whatever they want to factor in, in terms of what they want to do with an asset. From the brand perspective if you have an interminable franchise agreement and management agreement that helps if you are selling VP. It gives optionality to the buyer which is much wider that if you’re just selling within a specific brand, where they get just stuck with that brand, so optionality on the brad side is also key, but that’s not something you choose, that’s something you have. You either have or you don’t have. So you need to adapt your strategy for exit depending what the situation is from the brand point of view.
The Hospitality Channel will have videos about all aspects of the industry, including more on buying and selling hotel products.
The development potential of Zambia is rising as infrastructure is being put in place. It now has so many more opportunities for investors, as Hon. Lawrence Evans, Zambia's Deputy Minister of Tourism & The Arts says in this TV show.
Development potential and investment opportunities
And I think we’ve carried on like that, you know, we’ve been a very, very friendly country, you know, to accommodate people. And I can tell the investors out there that, you know, come to Zambia, you’ll never miss anything and we are going to look after you.There are a lot of opportunities. Before every person looks into investing into a country, you need to look at the stability of that country. How stable is the political scenario there? What has that country got to offer, in terms of protection, you know, to the investor? How safe is that person’s money? What is there for them, you know, to bring the money into the country? What are the returns, you know, for them, you know, when they bring their money into the country? And I think for a county like Zambia I would say, you know, we’ve for a long period of time, you know, lagged behind in a way that, you know, we’ve never actually had roads, you know, like going to the northern circuit which is actually our point now where we should actually look into. If one comes into Zambia and says, “Well you know, you’ve got the nicest falls that we’ve ever seen, you know, the Victoria Falls.” And yet you know, we’ve actually never had a chance to get people, you know, to go to places like Kalene Hills where the source of the Zambezi River is. So those are some of the things that we should be looking into, you know. Where we should actually look into developing these areas so that when people come and visit the Victoria Falls the next thing they should go to now is to go to the source of the Zambezi River.
The Hospitality Channel is very interested in investor behaviour and the development potential for hospitality in local and international regions. We will continue to bring you TV shows on these subjects.
A positive workplace culture can mean that the people you work with become friends. In this TV show Sinai explains why it is good for business to build relationships.
Workplace culture: People choose the people they know
There’s two sides. Getting to know the in house guests is something the operational team and the general manager would get to know. The side that I would get to know as a sales and marketing person is very much the booker. The person who would sign the contract, the person responsible for delivering that business. I think it is crucial to get to know your customer. You are as good as your last show round. It is very much the people. People work with people they know and like. It really is so true. I have been told sometimes people think I am working with my friends. Well they have become my friends, so I do believe there is that level that you go to. You appeal to everybody’s better nature. You’re working together on something, you have a common interest. So it makes it easier for you to have a better relationship with somebody if you are continuously face to face with them. I do believe in online, but I do believe that the actual face to face can never replace the telephone call or anything that is booked online and so on.
If you enjoyed this video about workplace culture, please browse more TV shows on The Hospitality Channel.
A good deal happens when the two parties share the same goals and develop a great relationship, as Rui Barros of Wyndham Hotel Group discusses in this TV show.
The first step in a good deal
Great partner, right out of the gate. You know, it starts there, I mean, and our CEO actually is known to say, a like-hearted relationship. I mean, the first step is to make sure that our interests are aligned. You know, obviously we're both in the business to be profitable, there's no question about that and I mean, that's just a given, that's cost of entry. But then beyond that it's that relationship that we have. I mean you know, I'd like to say that we're not necessarily in the hotel business or even the franchising business, we're in the people business and, you know, if we don't have that connection with people, it makes that partnership and that relationship that much harder. So it really starts with that. Great partnership, it starts there like-hearted, like-minded, like-hearted. And then from there it really is, and it's built from there, from there then it's collaboration, working very well together with not only the ownership group but the operators as well, whether we're operating or they're operating through a franchise. I think it's important that there's a lot of engagement and collaboration between the two entities because, you know, one of the things I notice quite a bit is sometimes folks buy a franchise or developers buy a franchise and they're not capitalising on all the tools and resources that are at their disposal.
And that's truly what a franchise is. If you buy a franchise you need to make sure that you're engaging in all the programs and all the initiatives that are out there, whether it be training or, you know, engaging in online travel agency participation or whatever it might be and marketing. We need to make sure that they're utilising all those tools and resources. So it starts with partnership, that great relationship and then everything else sort of, you know, carries on from there.
If you found this video, about making a good deal, interesting why not watch more TV shows on The Hospitality Channel?
Industry development depends on brand collaboration
Industry development in Africa means that international brands are arriving. In this TV show Michael Devereux of Starwood Hotels & Resorts suggests that international and local brands need to work together.
Industry development and deal-making
I think everybody plays the development side and the deal side of the industry, they play it very close to their chests quite naturally. You know, you don’t announce a deal until a deal is done. There’s always, word of mouth. It’s quite a small industry in fact. Word gets out that this company is looking at this property or this type of deal, which is natural. But I think we all play things close to our chest. We’re all playing in the same market, the international brands specifically. The local brands play a very important part of the industry. And the international brands must never underestimate the power of the local brands because the local brands have local support. Local support is what keeps your business flowing in the lower seasons, so they’re very important players. We need to possibly collaborate more with local industry players and support them more and possibly in those efforts they would support the international brands more in terms of information sharing and those aspects in order to make it easier to get entry into these countries. International brands are coming to Africa no matter whether you like it or not. It’s the ease of access into those countries.
If you found this video about industry development interesting, why not watch more TV shows on The Hospitality Channel?
Owner/operator relationships should involve understanding and flexibility as Michael Devereux of Starwood Hotels & Resorts explains in this TV show.
How are owner/operator relationships changing?
Hopefully for the better and I certainly would encourage that and especially from our side. I think operators need to be more flexible from a commercial terms point of view. They need to understand what the owners needs are from an equity and finance point of view. And to be able to offer more flexible terms, different types of deals and go into bigger, longer relationships with owners where it’s not only one hotel but you box the hotels into three, four or five types hotels. And then I think the operators will become a lot more flexible from a commercial terms point of view.
If you found this video about owner/operator relationships interesting, why not watch more TV shows on The Hospitality Channel?
A good deal in hospitality hinges on location and commitment as Valentine Ozigbo suggests in this TV show.
Good deals and the power of PPP
For me, one is location, once I find that location that I can buy for, then that’s it. All of these are within my control, raising the funding, getting the partnership in terms of the , structuring the details, but really location is priority. And of course like I say, if a partner or government in anyone, I also like to make sure that I get a commitment all through. My business is actually about partnership. My company also has a stake of the federal government on it. So I am familiar with the importance, the power of PPP, where government plays a bit of role and the private sector takes control.
The Hospitality Channel will continue to follow discussions about good deals and public- private partnerships.
Deal-making works best between stable established companies, as Olaf Schmidt of IFC discusses in this TV show.
Deal-making in hospitality
We always look to have a solid counterpart. So ideally a business company that really is solid in the undertakings in the sector.
We will look for conservative approach to the structuring of the transaction so that it's not overleveraged, to make sure that it's on sound business footings to be a long term sustainable business.
We ideally would want to work with counterparts who have experience in the sector because the hotel sector is often a little bit misperceived as being easy to be done while in reality you do need kind of a technical insight.
And that's where sometimes the international operators or regional operators can bring a lot of value to local business entrepreneurs, helping transfer that knowledge.
But we are open also for local business people who have established let's say a track record to support them in their roles across either the country or the region.
The Hospitality TV Channel will continue to follow ideas around deal-making in hospitality, and has more TV shows from Olaf Schmidt.
Deal-making with common goals in mind will lead to a more successful partnership. Alan O'Dea discusses his experience of this in the hotel in industry.
Deal-making is like a marriage
A good deal, number one is a good owner, that is an owner where we share exactly the same interest, that is a long term commitment.
It’s almost like a marriage. We need to be aligned with the owners’ wishes.
If somebody is in it for the short term and they want to turn the hotel around after five or six years, that is not necessarily something that we are interested in today, in general.
Alignment with owners’ interests, alignment with owners’ debt commitments, so that we understand from the outset what the return needs to be. And we need to be very honest with the owners as well.
Can we do it with the brand and the expertise that we have or should we leave it to somebody else to do it or should they go for a franchise agreement, which some of the other larger operators do.
So alignment of interest is very important. If we are aligned, the hotel will operate, the quality will be there, the returns will be there for everybody and it will be a very balanced agreement in that respect.
If you found this video about deal-making interesting, why not watch more TV shows on The Hospitality Channel?
Number one is location, because we have two brands at this time. We want to make sure that when we open a hotel, there is a market for us. We don’t want to open a hotel, just to open a hotel. We are not running just to open hotels just to have a bigger number in our brochures. All the hotels that we are building we are spending 350 million euros, so that shows that we are very serious about it. But at the same time we are also welcoming management contracts. You know, we have to operate hotels for our other owners. And we want to make sure that when they sign with us they will make money. So it has to be a win/win situation.
If you enjoyed this video about deal-making why not watch more TV shows on The Hospitality Channel?
Puneet Chhatwal: "The market for deal making has been very tough, however, it’s improving day by day. And I think it’s creating a lot of opportunities, especially on rebranding. I think new construction is tough, will continue to be that way. However, in emerging markets new construction is an opportunity too. The components of a good deal, it should be brand enhancing. It should be sustainable. It should last and not be short-term, it should be long-term. And it should provide a balanced return, both to the operator, to the owner and to the other stakeholders."
Patrick Sanville: "The owner is becoming more and more demanding. But the operator acts as a real partner than just taking fees out from him, and that, so he wants to be able to, if the hotel is not performing he wants to be able to have a say and eventually terminate the contract. And the performance clause, that there are, there can be really put together, that can really be, most of the profitable ... they come into play, because they’re too difficult to work out. So they want to have a say in that. They want to have a say in the, of course in the CAPEX programme. They want to be able also to … if the debt is not being paid, also to be able to terminate the contract."
Patrick Sanville: “First of all, in business market is a deal finance now, you know. There’s sufficient cash flow to cover the debt. Is the equity that is required to make the deal finance available? Is there a story to deliver? Is there an upside? Even if there’s no upside, is the yield sufficient to cover the debt payments? These are the kind of things that we will be looking at. Of course, you know, we have to think first, the banks, the kind of deal that can be achieved, because they’re all looking for gateway cities, branded … the good buildings, branded hotels. Everyone is looking for the same type of advance and of a certain size that can, you know, support all the due diligent cost. The banks are lending, if the deal is good the banks are lending. The issue is that there aren’t so many good deals around. The picture is not so rosy. But there’s always a silver lining. I think that, you know, of course it’s going to take time to do the leverage. But there’s always niches and there’s a play, in downmarket, probably even more so. But there will be some … some decent asset to be picked up. And there is plenty of money around. So there will be deals to be done. We’re in that period of recovery and rebuilding the economies.”
Peter O'Connor: 'The whole area of online distribution for hotels is one that is constantly evolving and it’s really confusing. And there are few hotel companies that really get it at the moment. Many peoples’ knowledge is probably two to three years out of date. So for example on the panel this morning the representative from Expedia was getting a really hard time. Now, Expedia 10 years ago was probably a naughty company, they were probably doing some things that weren’t good for hotels. But that’s evolved. And I found it amazing that the audience hasn’t actually evolved in their perception of the company. But OTAs, online travel agents, they’re partners. If you work with them they can deliver a business to you, it’s expensive but they’re providing a service, they’re putting heads in beds. So as a result they deserve to be rewarded. The key challenge we have for hotels working with OTAs is they don’t work with OTAs, they begrudgingly give them rooms and moan about the fact that they have to pay so much afterwards. But most hotels are running at 60% occupancy, maybe 65, that means one-third of their rooms are sitting idle every night. I’m a businessman, at the end of the day I would prefer to sell those rooms at 75% or 55% or even 50% rather than not sell them at all. And yes, you can talk about the damage to your brand, you can talk about so many different problems, but at the end of the day we have to make money. The other area that was quite interesting today as well is we were talking about developing business models, so one of the models that’s developing most rapidly at the moment is the whole area of flash sales. And today we were lucky, we had a representative from Groupon on the panel and again this is a model that’s misunderstood by many hoteliers. They see a large cost without seeing the benefits that Groupon can bring in terms of reach, in terms of targeting. They all say, “Oh, it’s easy, we could do this for ourselves.” But actually in reality if they try to do it for themselves it would be much more expensive."
Jalil Mekouar: "Brazil, Colombia and Argentina, are countries that would very much welcome capital coming from the northern part of the Americas and the rest of the world, for that matter. And it’s a matter of facilitating that capital flow and helping people understand the different markets. You know you don’t, obviously you don’t deal the same way if you deal with an Argentinean investor or developer as if you were dealing with a New York based developer. It’s very, very cultural. It’s very much understanding the business practices and at the same time bringing the transparency and professionalism that they are looking for but by mitigating the risks. So we are hoping that having a very strong global network that we’ll be able to bring that to the investment community.”
Hospitality a fundamental part of UK service industry
Steve Pateman: "We’ve been involved with the British Hospitality Association now for the last couple of years. Since we started building our corporate, commercial and business bank in the UK, which is only three or four years old in itself because we didn’t use to have that business at all. It’s very important that you kind of connect with the key industries in the UK. And the UK is a service economy. You just have to look at the, you know, when the service industry isn’t performing well the GDP isn’t performing well. And the hospitality is a fundamental part of the service industry in the UK. And we’ve got lots of hotels, we’ve got lots of restaurants, we’ve got lots of leisure facilities in the UK. And actually being in touch with that part of the UK currently is very important for any bank that wants to grow in the UK. And we want to grow in the UK. So we’ve grown our lending to small businesses by 20% per annum over the course of the last three or four years. We intend to kind of maintain that trajectory, and being in touch with these types of businesses is a good way of achieving that."
Laurence Geller: "Lots of things satisfy investors, normally it’s return. But where you’re competing for money, as I’ve been all my life, in the investment market, what you need is not just the deal, but you need the components of the deal, the skills, the reputation, the history and the proven sponsorship. In the United States where I built my first business, I set up to be so attractive because our asset management of these multi 100 million dollar assets were so good that we were an investor’s choice. And in any case we went public on the stock market choice. In the UK, for example, I’ve gone on the Board of Michelle’s and Taylor, David and Michelle’s company which is modelled after my asset management company in the US, because without having that certainty of real deep expertise as an owner, for an investor it’s skinny. So I think what’s really needed is all of the dots coming together, not just a deal and not just, I have an idea. It’s here is a deal. Here is the idea. Here is how I execute. Here is my track record, this is the depth.
Mark Wynne Smith: "The single biggest factor is to be a good executor. And by that I mean people who have done the right things at the right time. Again you look at our industry it was … we go back to 15 years ago, it was a cottage industry, I can’t remember how many people turned up there but it was a couple of hundred, and obviously what has happened is that as more assets have gone out into the public domain, as groups have adopted far more aggressive growth prospects, the whole market has expanded. New participants have come in and again on occasions they didn’t do anything wrong, it was just they did the right thing at the wrong time. And clearly over-leverage, all of these types of aspects has meant that the market has contracted quite a lot, in terms of the number of active participants. So if you are the type of company who has shown that you can perform in what the last couple of years, when you go to the table with the bank and you are negotiating over a loan, I think that sense of comfort that these guys do know what they’re talking about is what gets you ahead of the list. One of the interesting things, which is developing though is around the liking for banks to lend to their current customers because this is actually reaching the end of the line now because we have the point of single borrower concentration. So at some point they have to start lending to new guys because they can’t lend anything more to their current guys."
Simon Vincent: "We obviously look for a good commercial deal and we obviously look to put, a brand into a hotel project that fits the customer requirement. We look to work with a very strong development partner. We look to get strong financing behind a project. And overall we look for a project that’s going to add value to the overall Hilton portfolio and be an important part of our expansion plan."
Kingsley Seevaratnam: "The banks today are more focused on relationship lending as against looking for new players to lend to. So one of the advantages we’ve had is that, we’ve built up a relationship with banks for anybody who’s really looking at new borrowing. And entering the space for the first time I would say it’s going to be a lot tougher. That combined with the fact that I think lending is again, the focus on lending is moving away from loan to value to EBITDA multiples. So that again is changing. So it’s almost like from one extreme to another. In the old days when money was available they were lending 80% to 90%. Now you’re lucky if you get 50% of LPB in terms of deals. So my advice to people, well just hang in there, we sincerely hope the market is going to change. And beyond that, if you have a relationship that you already built up with the bank then you can sort of get by. But if you don’t, then good luck, it’s going to be tough."
Peter Norman: "The owner’s got to be the right owner. We’ve got to have an alignment in our aspirations for the opportunity. And then the location is so important, so both parties have to make money and by the nature of how a management contract’s structured the more successful the opportunity both parties win. So you’ve got to do your research right at the start. You’ve got to make sure that you looked at the market and therefore you understand where you want to go, which is the right brand for that particular product. And sometimes you decide that one of our Hyatt brands isn’t the right one. And the owner will go to somebody else because we don’t cover the whole spectrum of the hotel industry. So I think that for us it’s important that the research is done upfront to make sure that you’ve got the right brand in the right location regardless of whether it’s going to be our brand. And I think that those owners that have really put that investment upfront, then they’re going to be the ones that are successful. And if it means that they’re going to be successful with our brand, great. If they’re successful with another brand that’s also okay. At the end of the day that benefits the hotel industry and the image of the hotel industry in helping owners realise and become profitable."
Peter Norman: "Owners throughout the region have become more sophisticated. They understand the benefit of using professional advisors to guide them through the negotiation process. That’s one big change in how owners approach a negotiation. Then the other thing that we’ve noticed more recently is that there’s more of a focus on how can the operator help an owner in today’s current market, really help with the funding of their project. So today it’s really hard to really generate sufficient funding or financing for a project. And you can’t go out and spend $250,000 a key to build an all singing and dancing hotel without getting a little bit of leverage on there. There aren’t that many owners that have cash. And they don’t put all their cash into that project. So they need help with the debt and so there’s more and more people now or owners asking us for, “Can you help us secure the funding for this project?” And that’s where all operators are having to really consider, do we make a financial commitment to this project and in what form does that financial commitment take. And that’s a question of listening to what the owner wants and then trying to structure it within our parameters of negotiating to make the project work."
Steven Rudnitsky: "There seems to be a lot more activity, if you will, certainly a lot more dialogue around activity, whether that dialogue turns into real deals is always to be determined. But there seems to be a bit more energy than perhaps in the last year and the year past. So I think that there’s a lot going on and there’s a lot for us to be working on. For us, not every deal makes sense for us by any means. We want to focus on what we know we’re particularly good at. And that’s hotels with sufficient meeting space for us to really drive the group business. If it doesn’t have a lot of group meeting space it’s really not necessarily in our real house if you will. So we don’t necessarily focus on it, but if it is a group meeting oriented type hotel then we’ll be very aggressive about how we go after it and hopefully we’ll prevail."
Bani Haddad: "Middle East has been an amazing market for us. We’ve grown … in the last five years we’ve grown our portfolio to have now 38 properties, primarily in the Gulf. And we’ve seen significant growth in Saudi Arabia, UAE, Doha, Qatar. And we’re still very excited about these markets. We still see a lot of opportunities in Saudi Arabia and the UAE specifically. So far we have grown with our Ramada brand which is a midscale product, extremely successful. And we have recently over the last two years started introducing our new brands, the upscale brand Wyndham and Grand in Doha, we’ve announced two deals, one in Riyadh, one in Bahrain as well, for two other Wyndham Grand hotels. But we are also very excited because the market is maturing and many of these countries we’re seeing the demand now for the budget and economy sector. And globally we’re a market leader in the economy and budget sector with iconic brands such as Days Inn, Super 8, Howard Johnson and so we’ve started developing these brands in the Middle East as well. The political stability in the Arab Spring did have an effect on our growth. And so that’s one. And then the second one has been the financing. You know, most of the portfolio – most of our portfolio and the hotel inventory in the Middle East is new built. So if you don’t have access or if financing is difficult you have a problem in building that pipeline."
Clive Hillier: “The mood that I’m detecting is guardedly optimistic. What I mean by that is that the market performance of hotel terms has not improved in any way really, there our hot spots like London and Paris of course, but in general it’s a pretty flat market out there. Having said that, a flat market that is no longer falling to any great extent. So people, to an extent have recognised that this is as bad as it’s going to get, it’s not going to improve quickly but nonetheless we know where we’re at. And I think the other mood that I’m detecting is that in a deal sense, people for a long time have been saying, “Yeah, I’ll look at a deal but there’s no rush, I can look at it again in six months time, it may even be cheaper in six months time.” So deals have been few and far between and have had very long gestation periods. I’m detecting, and I hope I’m right, that the mood is changing in that sense. People are now saying it probably isn’t going to get any cheaper to any great extent and it may disappear. So we ought to start doing things. I do think that we are going to see over the first six months of next year particularly, but hopefully the last six months of this year as well some significant increase in deal activity."
Clive Hillier: “Finding the right deal is not the problem for me, a mismatch of expectations between buyer and seller has been a problem but the deals have been there to be done. The major problem that still subsists is the lack of debt funding, that is the challenge. There’s a vacuum, people look to move into that vacuum. We are seeing for example, a lot more activity in mezzanine funds being available to supplement debt levels. So whereas prime lenders are probably not going to go beyond 60%, maybe 65%, there are now mezzanine funds out there as well that will top that up, it may get you to 80%. So the availability of debt funding is improving and I think that supports again my contention that we should see an increase in deal pace in activity over the next 12 months."